Transfer Pricing Assistance Outlined for Developing Nations

July 29, 2011 International Tax Cooperation

Developing nations need assistance with transfer pricing documentsDeveloping nations need to instate modern transfer pricing legislation to increase tax revenues, and assistance offered to these countries must be targeted, in order to maximize effectiveness, based on their current state of legislation and tax infrastructure.

A new study was prepared earlier this month by PricewaterhouseCoopers for the European Commission, outlining the potential steps needed to address the inadequate transfer pricing rules in developing nations. According to findings contained in the report, the economic advantages and tax revenue benefits of instating appropriate transfer pricing regulations in developing nations will far outweigh the costs of fostering the necessary expertise and tax administration. However, the assistance offered by developed countries must be properly targeted to each country’s specific needs, situation, and available infrastructure, in order to ensure maximum effectiveness.

For the purposes of the report, developing nations were classed as either having no current transfer pricing rules, being in the process of developing and implementing a set of transfer pricing legislation, or already having a functioning set of transfer pricing regulations which could still be refined and improved.

In the instance of a country not already having any transfer pricing rules in place, it was suggested that all donor assistance should come in the form of efforts to help tax authorities in the country instate the basic aspects transfer pricing rules. In particular, it was recommended that tax administrations in developed nations could offer help by providing examples of existing transfer pricing legislation, and offering guidance in the drafting of new legislation.

For developing countries which have already begun instating their own transfer pricing rules, it was suggested that assistance be offered to facilitate more effective implementation of the rules. Expert help could be offered to drafting improved documents and protocols that will be needed by tax authorities when conducting transfer pricing investigations in the future. Instead of monetary donations, developing nations would also benefit greatly from organized information sessions for tax authorities and the financial industry.

Developing countries with already implemented rules could also be offered assistance in bringing their legislation to international standards through help in drafting more sophisticated and encompassing rules, advance pricing agreements, and simplified compliance procedures. Developed countries were encouraged to offer specialist consultation on intricate cases of transfer pricing abuse committed by multinational companies.

Photo by Images_of_Money